Nandan Nilekani, Rakesh Jhunjhunwala jointly invest Rs 100 crore in entity that owns Café Coffee Day

BENGALURU | MUMBAI: Infosys cofounder Nandan Nilekani and billionaire investor Rakesh Jhunjhunwala have bought stakes in the entity that owns the Café Coffee Day chain ahead of an initial share sale in the coming weeks. Three people with direct knowledge of the development told ET that Nilekani and Jhunjhunwala have together invested Rs 100 crore in the pre-IPO placement, valuing Coffee Day Enterprises at Rs 6,000-6,500 crore.

Radhakishan Damani, founder of retail chain D-Mart and a man reputed to be one of India’s shrewdest investors, is also on the verge of sealing a deal to buy an undisclosed stake in Coffee Day Enterprises, giving the Bengaluru-based holding company a burst of star power before its listing.

Jhunjhunwala confirmed his investment while Nilekani did not reply to questions seeking comment.
Damani declined to comment. VG Siddhartha, the founder of Coffee Day and who is known to be a personal friend of all three, also declined to comment.

The share sale by Coffee Day will be the first major IPO of 2015 as the coffee chain looks to cash in on a buoyant stock market to fund its growth and arm itself with cash to take on competition from international brands such as Starbucks and Dunkin’ Donuts.

The pre-IPO share sale could value the 70% stake owned by Siddhartha, a reclusive former investment banker who is also India’s biggest coffee grower and a serial investor, at around Rs 4,900 crore. The company has appointed Citi Group, Morgan Stanley and Kotak Mahindra Capital Company to manage the IPO that will target raising anywhere between Rs 1,000 crore and Rs 1,200 crore through an issue of fresh shares.

The exercise will see private equity groups such as KKR, Stanchart PE and New Silk Route, investors in the company since 2010, also sell a part of their holding, possibly around Rs 200-300 crore worth of shares. These firm invested around $150 million (about Rs 940 crore) for a 29% stake in the company, which owns 1,550 retail outlets — more than three times that of all the three competitors combined — in 200-plus towns and cities across India.

Siddhartha, a first generation entrepreneur from Karnataka's coffee growing Chickmagalur district, is one of South India's richest persons, with an empire that spans a range of businesses. He controls logistics firm Sical Logistics, SEZ developer Tanglin Developments, financial services firm way2wealth.com and four boutique high-end resorts branded The Serai. Apart from Siddhartha's personal stake of 4%, the Coffee Day Group has 17 % stake in software consulting firm Mindtree. He also owns a 4% stake in Tamil Nadu-based Lakshmi Vilas Bank. Siddhartha will not sell any of his holding in the planned IPO.

The long-awaited Coffee Day IPO will be first from a company in the quick service restaurant business in more than five years. The last public flotation by a company in the sector was that of Jubiliant Foodworks, which owns the master franchise for Domino Pizza in India, Nepal, Sri Lanka and Bangladesh and for Dunkin’Donuts in India, in 2010. The company's stock is trading more than 10 times its IPO price at Rs 1,623, giving it market value of more than Rs 10,600 crore.

Coffee Day is expected to file its draft red herring prospectus (DRHP) with markets regulator Sebi in about a month’s time. The holding company, according to a person familiar with its financials, is expected to end the year 2014-15 with core earnings or EBIDTA of around Rs 500 crore. The coffee business alone (retail plus exports) is expected to post an EBIDTA of Rs 200 crore on revenues of Rs 1,500 crore.